The U.S. Dollar is sitting tight ahead of today’s big risk event in the FOMC decision and press conference.
Overview
Fed Chairman Jerome Powell is expected to explain that economic conditions are sufficient to merit a hike in interest rates soon, perhaps at their meeting in March. As we have warned in previous days and on media appearances, any hesitation, or signs that the Fed might delay increasing borrowing costs will play as a surprise walk-back from a more hawkish tone in December. If so, the buck could sink or move wildly depending on market reaction. Equities would likely welcome such a thing, which leads to believe risk-on sentiment that could hurt the dollar and erase its early-year gains.
It is official that this has been the worst January performance for stock ever. Additionally, the International Monetary Fund decided to revise their economic growth outlook downward by a full percentage point to 4.4% in fears that China and then U.S. will slow down big time. Omicron may be fading, but what is not is the shortage in micro-chips that has made it also expensive to produce most of anything. The expectation is to cope with challenges for another 6 months or longer. With such headlines, it will sound indeed very hawkish if the Fed ignores and sets itself ready to cover all three to four potential hikes.
What to Watch Today…
- No major economic events are scheduled for today
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EUR
The Euro stayed in its five-week low-point as commentary from economic figures continues to indicate little interest in raising interest rates any time soon. European Central Bank Chief Economist Philip Lane explained during questions yesterday that Omicron may not dictate all that happens this year and that activity has not taken much of a hit. Yet he was also careful in sounding too hawkish and said it was concerning that wages had not caught up to the high levels of inflation seen.
We shall see what the Fed does today to truly separate its thinking and course of action from an ECB that seems to want to wait for all of 2022 to just play out before doing anything to the financial environment.
GBP
Pound Sterling had a little uplift overnight despite political tensions affecting the U.K. internationally and domestically. Prime Minister Boris Johnson made statements on the need to deter Russia and support NATO with armed forces yesterday, which satisfied his cabinet as well as members of the Tory party in general.
Nevertheless, our friends across the Atlantic are going through some sort of “Party-Gate” investigation surrounding the PM’s parties and gatherings throughout the pandemic era. There is a possibility of sparking a no-confidence vote if 54 members of Parliament (15% of the legislative body) decide he has to go. Thus far, there is no confirmation that there is enough support for the measure, but stranger things have happened.
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